Speaker 1: Hello, and welcome to What Goes Up, a weekly markets podcast.
Speaker 1: My name is Mike Reagan. I'm a senior editor at
Speaker 1: Bloomberg and I'm Aldana Higher across asset reporter with Bloomberg.
Speaker 1: This week on the show, well, the Federal Reserved just
Speaker 1: isn't messing around anymore. This week, the Central Bank raised
Speaker 1: its benchmark interest rate by three quarters of a percentage point.
Speaker 1: That's the biggest increase since way back when all my
Speaker 1: hair was still browned and I was just a cub
Speaker 1: reporter covering school boards and car crashes out of newspaper.
Speaker 1: And while markets initially reacted positively to the feds aggressive
Speaker 1: inflation fighting efforts after the decision on Wednesday, well something
Speaker 1: resembling a car crash broke out the following day, with
Speaker 1: both stocks and bonds tanking violently. We'll be joined by
Speaker 1: a chief in usmen strategists to the sect what is
Speaker 1: freaking out markets and what it all means going forward.
Speaker 1: But first, Bill Donna, I have to say I think
Speaker 1: regular listeners of the podcast no that I can't resist
Speaker 1: a good gimmick. Yeah, yeah, I know. And and my
Speaker 1: latest gimmick was that if we got more ratings and
Speaker 1: reviews on the show. I think I said if we
Speaker 1: got the three hundred, that we would reveal your your
Speaker 1: high school nickname. Um. What I did not anticipate is
Speaker 1: that in those ratings and reviews you would receive an
Speaker 1: actual marriage proposal. Yeah. I saw them in the in
Speaker 1: the Apple UH podcast reviews. By the way, you accepted, Yeah,
Speaker 1: I didn't accept. I don't know who it is because
Speaker 1: they I think they posted under UH like a user name,
Speaker 1: isn't their name? Yeah. The bad news for that listener is,
Speaker 1: I'm sorry, Bill, Donna has already had happily married and
Speaker 1: and further more, well, Donna will not even allow me
Speaker 1: to join her professional network on LinkedIn. So I don't
Speaker 1: I think your chances of getting a marriage proposal accepted
Speaker 1: through the comments on Apple podcast. While I admire the effort,
Speaker 1: you know, shooters got to take their shot, I do
Speaker 1: not suppose this one will be accepted. I went on
Speaker 1: LinkedIn after you called me out for not accepting you,
Speaker 1: and I had one fifty eight invites, So you're not alone.
Speaker 1: I accepted one of them, like there was somebody I
Speaker 1: really liked. Yeah, this one of them. Okay, another Bloomberg reporter. Yeah,
Speaker 1: you know this is gonna sound like sponsored content from Lincoln.
Speaker 1: I'm not even really a big LinkedIn guy. I just
Speaker 1: checked my my notifications to see if anyone's yelling at
Speaker 1: me or complaining about something they probably I was like,
Speaker 1: I was like someone Tagg Fildata and I go and
Speaker 1: I'm looking at Bill Donna's page. It's like, oh second,
Speaker 1: I'm a second. Yeah, you're not going first. You're not
Speaker 1: like a runner up member of your of your professional network.
Speaker 1: You know who's first in the first year, our guest
Speaker 1: our guests this week. Oh that's great. Yeah, but I
Speaker 1: do want to bring in Anastasia emiro So. She's the
Speaker 1: chief investment strategist at I Capital. Anastasia, thank you for
Speaker 1: joining us again. Good to talk to your with with
Speaker 1: your Modanna and Mike, and Mike I would be happy
Speaker 1: to accept. He was the first connection on my professional network.
Speaker 1: There you can have some friend. That's fantastic. You're one
Speaker 1: one friend. But Anastatia, you've been on the podcast before.
Speaker 1: You actually have changed jobs since the last time you
Speaker 1: were on, so I was hoping you could just sort
Speaker 1: of start out telling us about your new role in
Speaker 1: your new shop. Sure, well, I am a chief investment
Speaker 1: strategist at I Capital, have enjoyed from JP Morgan actually
Speaker 1: about a year ago. And you know, I Capital is
Speaker 1: really the global alternative investment platform, and we are on
Speaker 1: a mission to make it easier for more and more
Speaker 1: investors to access all round of investments. And you know,
Speaker 1: this year in particular has been a case in point white.
Speaker 1: It's so important to think beyond the sixty forty. You know,
Speaker 1: I wrote this outlook in the beginning of the year
Speaker 1: that called for higher kernel rates and lower potential reference
Speaker 1: and I don't think any of us would have guessed
Speaker 1: that the kernel rate was going to end up being
Speaker 1: a point six percent inflation and the returns for the
Speaker 1: sixty forty um, you know, just got dectimated. So this
Speaker 1: is why, and I kept all the focus on things
Speaker 1: like private equity, private credit, real estate and increasingly allocating
Speaker 1: to digital assets as well. So you know, my role
Speaker 1: as a chief investment strategist is really trying just to
Speaker 1: help investors understand what alternatives are the right ones for
Speaker 1: this particular part of the business ycle you know, and
Speaker 1: the stage. I want to get your thoughts on all
Speaker 1: this recent market action. But um, just to follow on
Speaker 1: that notion of of how you're sort of interacting with
Speaker 1: cients these days. I think it was an interesting period
Speaker 1: after the financial crisis, and we just had this almost uninterrupted,
Speaker 1: uh all run in equities. UM. It seemed to be
Speaker 1: almost uh maybe this is over dramatic, but almost an
Speaker 1: existential threat to the hedge fund industry. You know that
Speaker 1: the line just kept going up. UM. All of the
Speaker 1: sort of the best strategies started to become turned into
Speaker 1: factors that you could use in in ETFs and passive
Speaker 1: passive vehicles. But I do feel like this nasty market
Speaker 1: action this year UM sort of flips the switch a
Speaker 1: little bit turn turns the narrative back UM and hedge funds.
Speaker 1: You know, while we certainly see a lot of headlines
Speaker 1: about some that are struggling, uh in aggregate I I
Speaker 1: you know, the indexes I looked at, they are outperforming
Speaker 1: pretty significantly, still not you know, up a lot for
Speaker 1: the year, but losing less from from a sort of
Speaker 1: an aggregate index level. Has it sort of revived the
Speaker 1: demand for for hedge funds, particularly based on on what
Speaker 1: you talked with with your clients. Absolutely, how is Mike?
Speaker 1: And this was part of our outlook as well as
Speaker 1: we anticipated this being a much much better environment for
Speaker 1: hedge funds that we get clients interested. And the reason
Speaker 1: for that, I mean, you said it's spot on for
Speaker 1: the last ten years. I mean, really, all you had
Speaker 1: to be is risk on for the most part, with
Speaker 1: a few exceptions, and you buy the dip along the way,
Speaker 1: but mostly if you're invested in stocks and hi yield bonds,
Speaker 1: he probably did just find so he didn't actually need
Speaker 1: hedge dequity and portfolio and you didn't really need you know,
Speaker 1: relative value trade and so forth. But that changed dramatically
Speaker 1: this year, and we anticipated this year to be a
Speaker 1: year of higher velocity and higher volatility and void do
Speaker 1: we get it? And so that's what I think has
Speaker 1: been so narrative changing for hedge funds is all of
Speaker 1: a sudden, there's equity volatility to trade, there is the
Speaker 1: ext income volatility to trade. There's a lot of macro
Speaker 1: factors are in the driver's seat. So if you look
Speaker 1: at the hedge fund performance, Mike, you said it, but
Speaker 1: the overall hedge fund h f R I industries, for example,
Speaker 1: they're out performing the market nicely. But even if you
Speaker 1: further dissect within that the global macro funds are doing
Speaker 1: really well. And within that, you know, you have some
Speaker 1: really top core child winners that are really attracting client interest.
Speaker 1: If you look at relative value hedge funds, arbitrage strategies, um,
Speaker 1: all of those are delivering above market returns. And also
Speaker 1: quant quant is actually working this year as well. So
Speaker 1: I do think in this environment where nothing seems to
Speaker 1: be working, investors are looking for something that is and
Speaker 1: right now that is in the hedge fund space. And Anastasia,
Speaker 1: just to bring us back to the big event this week,
Speaker 1: which obviously was the FED, actually was super excited for
Speaker 1: the Wednesday pressor because you know, we were all having
Speaker 1: this debate about whether or not we were going to
Speaker 1: get fifty or seventy five, and we had some people
Speaker 1: calling for a hundred basis point hike. So can you
Speaker 1: just lay out for our audience what exactly happened with
Speaker 1: the FED this week, what we heard from j Powell. Yeah, well,
Speaker 1: even what happened earlier in the week, because we got
Speaker 1: a massive pivot from the fedt during the time when
Speaker 1: this was supposed to be a no communication and time frame,
Speaker 1: and we got a pretty strong hand that they're going
Speaker 1: to go for seventy five basis points, and you know,
Speaker 1: in retrospect, it makes a lot of sense because the
Speaker 1: problem with inflation for the Fed right now is they
Speaker 1: can't just focus on the core because the headline inflation,
Speaker 1: the higher gas to lead prices, the higher food prices,
Speaker 1: that's was driving consumer sentiment, and that's was driving consumers
Speaker 1: and expectations of future inflations. So as those expectations surge,
Speaker 1: the FED had to react to it. So here's my
Speaker 1: couple of takes on you know, what do we think
Speaker 1: now that they have hike seventy five basis points. You know,
Speaker 1: first of all, we did anticipate this meeting to be
Speaker 1: a howkish one, and it definitely definitely was. But I
Speaker 1: don't think we can say that it was a hawkish
Speaker 1: surprise to the markets, and you saw how the markets
Speaker 1: initially reacted to the path of increases. The reason I
Speaker 1: say that is a lot of the pricing market price
Speaker 1: saying was already in place before that meeting. And if
Speaker 1: you think about what the markets have been pricing in
Speaker 1: through February, it's close to four percent UH in the
Speaker 1: FED funds rate, So I think a lot of that
Speaker 1: rate increases was already baked in, and that's perhaps why
Speaker 1: the FED was emboldened to do this. But my other
Speaker 1: takeaway not a Hawker surprise, but I think a significant
Speaker 1: move towards restoring the Fed's credibility. I mean, if when
Speaker 1: you look at eight point six percent inflation or six
Speaker 1: percent core inflation, and you'll if you look at the
Speaker 1: FED funds rate, we were far far forward, too low,
Speaker 1: and the FED needed to catch off very badly. So
Speaker 1: I think the fact they're acknowledging it, they're doing it,
Speaker 1: they're moving it is actually a positive for markets because
Speaker 1: we feel like the FED has maybe regaining some control.
Speaker 1: And then the last thing I'll say about this, the
Speaker 1: reason why the equiting markets have been so tough this
Speaker 1: year is because it was really hard to gauge the
Speaker 1: FED reaction function. They say they're trying to be balanced
Speaker 1: one week, and then they say, oh, we're going for
Speaker 1: fifty base once. Now we go for seventy five basis points.
Speaker 1: So you've got whips thought by this FED communication. But
Speaker 1: it seems like they're giving us a more explicit reaction function.
Speaker 1: The focus now is on headline inflation. If it's surprises
Speaker 1: to the upside, should expect a more aggressive path of
Speaker 1: rate hikes, and if it doesn't, perhaps they can pause.
Speaker 1: So at least we know that now, and you know,
Speaker 1: perhaps it's little constellation to the markets per se, but
Speaker 1: at least it does restore credibility in fighting inflation. But
Speaker 1: isn't there a big risk that it just doesn't work?
Speaker 1: You know that these supply chain issues continue, and that
Speaker 1: oil continues to climb higher. You know, uh, Russia appears
Speaker 1: nowhere near ready to capitulate in that war. Um, And
Speaker 1: you know what's the risk there if to the Fed's
Speaker 1: credibility and the markets in general, if you know, they
Speaker 1: keep hiking and inflation stays at if not as high
Speaker 1: as it's been, still well above target. Well, Mike, there's plenty,
Speaker 1: plenty of risk, right And you know one of the
Speaker 1: immediate risks is if you look at US gasoline prices,
Speaker 1: you know, the price you pay the pump close to
Speaker 1: five today. I think it goes it could go to
Speaker 1: six over the summertime. And frankly, there's little the FED
Speaker 1: can do about this. There's even little the Biden administration
Speaker 1: can do about this, because the reason why that's happening
Speaker 1: is it's not so much about the oil supply demand
Speaker 1: and balance. But now it's about the lack of refining
Speaker 1: capacity to actually get enough gasoline on the road. So
Speaker 1: the FED can't fix that, and you know, they tighten policy,
Speaker 1: but are people really gonna drive less? Probably not. You know,
Speaker 1: the FED cannot so, so the risk is that oil
Speaker 1: prices and gasoline prices may have to rise higher then lower.
Speaker 1: They have to rise to the point where they start
Speaker 1: to destroy demand and then they subside. You know. The
Speaker 1: other risk is with food supply shortages. Again that is
Speaker 1: not something the FED can fix. We know the bottlenecks
Speaker 1: that are coming out of Russia and Ukraine. So there's
Speaker 1: plenty of risks. But the bottom line, and I think
Speaker 1: that's why the FED has been getting more more aggressive here.
Speaker 1: They're trying to control what they can control, and that
Speaker 1: is the core parts of the inflation. It is wage inflation,
Speaker 1: and it is slowing down the exuberant in the tech
Speaker 1: sector and the crypto sector. Uh, it is about slowing
Speaker 1: down housing and boy was raped you know, close to
Speaker 1: six percent on thirty or mortgagitory. It's probably going to
Speaker 1: do it. So they're focusing on the core side of
Speaker 1: the equation. So perhaps they can counter balance the headline
Speaker 1: that they really can't control. So so if you had
Speaker 1: to sort of handicap the probability of a quote unquote
Speaker 1: soft landing, um, you know, in other words, the Fed
Speaker 1: manages to bring down inflation without triggering a recession. Where
Speaker 1: do you stand on that? What do you what do
Speaker 1: you think they're your odds are of actually being able
Speaker 1: to pull that off. Look, I think we have a chance.
Speaker 1: And perhaps that's a fifty fifty chance at this point.
Speaker 1: And I say that while the markets are really not
Speaker 1: seeing it this way now there right now pricing it
Speaker 1: close to probability of recession based on the SMB five,
Speaker 1: based on the credit spreads, but when you look at
Speaker 1: the economic indicators that the same imply probability of a
Speaker 1: recession is about for you. But I think we have
Speaker 1: to give ourselves a chance here. And I want to
Speaker 1: draw some parallels to nine four that at the seventy
Speaker 1: five basis point rate hike, you know, that had aggressive
Speaker 1: moves hired rates, and yet if you look at the
Speaker 1: gdp UH during that time frame, it didn't actually go negative.
Speaker 1: It slowed down from five percent to two percent. And
Speaker 1: that's sort of what the forecasts are calling for now,
Speaker 1: you know, we're going from two point seven percent GDP
Speaker 1: this quarter or next maybe at one point seven next year.
Speaker 1: Is that a recession or is it a tought landing.
Speaker 1: You know, there, of course many ways to define a recession,
Speaker 1: and you know, some people think of it in terms
Speaker 1: of sequential slow down, but I think a more proper
Speaker 1: way is to say negative GDP growth and several quarters
Speaker 1: of it. And I don't know that that's exactly where
Speaker 1: we're headed, because what really takes to cause a true
Speaker 1: deep recession is a lot of imbalances. I think back
Speaker 1: to the financial crisis. We had the mortgage debt, we
Speaker 1: had the consumer debt, we had the corporate debt. We
Speaker 1: have had the financials levered up, and we had all
Speaker 1: the video squared. And when I think about those counter
Speaker 1: parties today, we don't have the same degree of imbalances.
Speaker 1: So that's why I'm still in a camp of a
Speaker 1: slow down for sure, but perhaps not the inn our recession.
Speaker 1: I know that after the FED meeting, I had read
Speaker 1: a bunch of notes that that we're sort of looking
Speaker 1: through Paul's comments and a lot of the takeaways were
Speaker 1: the some of the stuff he was saying was a
Speaker 1: bit contradictory. So we got the comments about the next meeting,
Speaker 1: the July meeting could be either fifty or could be
Speaker 1: seventy five basis point hikes. So how do you pass
Speaker 1: through this and how do you make sense of it?
Speaker 1: Like what is your your takeaways in terms of some
Speaker 1: of a contradictory things that we did hear from the
Speaker 1: FT this week. It's really tough to admit for anybody,
Speaker 1: for everybody, including a FT your pal, but we don't
Speaker 1: have a crystal ball. The FED does not have the
Speaker 1: crystal ball and inflation, and I think we have all
Speaker 1: collectively as investors, as policy makers, we have capitulated to
Speaker 1: this view that we just don't know what the next
Speaker 1: inflation print is going to look like. We're across our fingers.
Speaker 1: We hope it's lower than it was the month before,
Speaker 1: but the reality is we don't know. So the reason why,
Speaker 1: you know, perhaps we have this I mean, I call
Speaker 1: it choppy and a little bit sloppy policy from the
Speaker 1: Fed is because they truly don't know um, but they
Speaker 1: are preparing the markets for you know, the potential for
Speaker 1: seventi five basis points. I think that's constructive because that's
Speaker 1: what's becoming priced in. But here's what I say, voll Donna,
Speaker 1: is when you look at the aquadum markets and you
Speaker 1: have a FED that doesn't have a crystal ball and
Speaker 1: they're having to adjust to the absence blows of inflation,
Speaker 1: that is going to create for this lack of predictability,
Speaker 1: and as you know, that's not good for markets. That's
Speaker 1: an environment in which the markets struggle. And that's why
Speaker 1: it's so hard to make a call on any sort
Speaker 1: of bottom, and it's so hard to make a call
Speaker 1: on any sort of buy the dip for this tactical
Speaker 1: short term rally. It's just not the environment we're in today,
Speaker 1: you know. And it says you mentioned that notion of
Speaker 1: sixty forty being under so much pressure this year, you know,
Speaker 1: both both stocks and bonds just having an awful year.
Speaker 1: I looked at the Bloomberg Treasury Index. I think it's
Speaker 1: basically the worst year the treasury markets ever had. You know. Uh,
Speaker 1: But has this correction or bear market in both asset
Speaker 1: classes sort of made sixty forty look look attractive again?
Speaker 1: Do you think where is there still worth trying to
Speaker 1: to shoehorn in some alternatives into that space. Well, I
Speaker 1: think the answer to the two part question is yes
Speaker 1: to both of those things. I do think that we're
Speaker 1: approaching some interesting levels on both docks and bonds. And
Speaker 1: we're not calling bottoms here, but one thing that we
Speaker 1: can say we're now excited about in this environment, you
Speaker 1: can actually get paid in the safest of assets, which
Speaker 1: is the triple A rate at U S. Treasury. You
Speaker 1: can get paid three point three percent on a two
Speaker 1: year treasury not give or take. You know, if the
Speaker 1: terminal rate does in fact go to zero, you know,
Speaker 1: maybe the yield does inch towards zero. That's exciting. What
Speaker 1: was the last time you could get that safety asset
Speaker 1: um with that sort of yield. So in this environment
Speaker 1: where investors grave certainty, grave safety, I think it's a
Speaker 1: really interesting thing to be adding back to your port
Speaker 1: folio in terms of sporting um. On the equity levels,
Speaker 1: I think at some point you have to wonder if
Speaker 1: enough has been priced in as well. I don't think
Speaker 1: equities are screaming by yet, and I'll explain that in
Speaker 1: just a minute. But if you think about that, of
Speaker 1: the recession probability has already been priced it. So even
Speaker 1: if we do have a recession, we probably stay in
Speaker 1: a pretty good chunk of it, so perhaps you may
Speaker 1: be able to step in and added crementially um for
Speaker 1: in order for it to be a screaming by. I
Speaker 1: think we do have some further room to go in
Speaker 1: terms of multiple correction. You know where sixteen times forward earnings,
Speaker 1: we probably have to step it down to fourteen times
Speaker 1: forward earnings and assuming the earnings whole, two d thirty
Speaker 1: five on the SMP five hunter and that gets you
Speaker 1: to about the SMP so we could still take another
Speaker 1: you know, well thirteen lower like from here, so at
Speaker 1: that point that would be screaming by by the bottom line,
Speaker 1: the answer to the first party of question is we
Speaker 1: are approaching some interesting levels in which you may want
Speaker 1: to add back to the sixty and the forty. But
Speaker 1: the other part of your question is this still a
Speaker 1: good time to be an alternative? I mean, frankly, I
Speaker 1: think it's always a good time to be an alternatives
Speaker 1: because you just have these extra levels to pool um.
Speaker 1: We talked about hedge funds and how they are delivering
Speaker 1: the value in this environment, but think about private credit.
Speaker 1: If you look at private credit, most of that is
Speaker 1: floating rate and an environment where the FED keeps on
Speaker 1: hiking and hiking, that's the place you want to be.
Speaker 1: And then the thing that I really like about credit
Speaker 1: is it's a liquid which means it doesn't trade on
Speaker 1: technical market dynamics. So when dealers pull back the inventory
Speaker 1: and you have a number of cells and high yield
Speaker 1: and leverage loans, that's not the case in private credit.
Speaker 1: So as a result, you end up which a much
Speaker 1: smoother path of returns in private credit versus let's say
Speaker 1: hi yield. So I think that's still a very interesting
Speaker 1: place in private equity, I would say, you know, for
Speaker 1: vintages that have been invested in the last couple of years,
Speaker 1: of course, this is going to be a tough environment
Speaker 1: for returns in the next couple of quarters or maybe
Speaker 1: a couple of years as a valuation subside. But if
Speaker 1: you're a new investor in private equity and if you're
Speaker 1: allocating fresh capital, now, guess what that's going to be
Speaker 1: deployed at lower valuations that were likely see over the
Speaker 1: next couple of quarters for a couple of years. So
Speaker 1: I think a lot of investors should be thinking about
Speaker 1: this as an opportunity to commit that lawn term capital
Speaker 1: now to invest it later those lower valuations. So I
Speaker 1: definitely think there's room for both. Um, you know, not
Speaker 1: quite declaring the market bottom here and not quite saying
Speaker 1: equities are cheap. But I think a combination of all
Speaker 1: of those dogs, bonds and alternatives that's what makes it
Speaker 1: for better outcome. Well, speaking of the clearing a market
Speaker 1: bottom or not, I know you had sent us some
Speaker 1: notes before we started the podcast, and I just want
Speaker 1: to read one of the quotes that says, at current levels,
Speaker 1: we would not be meaningfully increasing equity allocations until we
Speaker 1: have seen more evidence of inflation slowing and economic slowdown
Speaker 1: flattening out, and importantly the FED shifting it's hawkish tone,
Speaker 1: which to me it struck me as sort of these
Speaker 1: things sort of being a really long time off. So
Speaker 1: if somebody wanted to deploy some some cash right now,
Speaker 1: what would you be telling them in terms of where
Speaker 1: to put it? Yeah? Yeah, So, first of all, I
Speaker 1: mean a long time it's interesting that common is interesting,
Speaker 1: and you know, things tend to move quicker in these
Speaker 1: markets than they have in prior years, So I could
Speaker 1: actually see a scenario that over the next quarter or
Speaker 1: two we could be on that you know, other side
Speaker 1: always slow down, and on the FED that is pausing.
Speaker 1: I mean, if you think about just basic GDP forecast,
Speaker 1: but this quarter, next quarter, we're anticipating two point seven percent.
Speaker 1: By Q four this year, that's going to step it
Speaker 1: down to one point seven percent. And that's sort of
Speaker 1: what the FED expects for next year as well. So
Speaker 1: by Q four we might actually have seen a slow
Speaker 1: down in growth, we might have seen a flattening plateau
Speaker 1: of growth that would cause the FED to carry back
Speaker 1: some of that hawkishness. So you know, I think this
Speaker 1: is a week by week, one by month by month situation,
Speaker 1: and perhaps this is not actually years in the making
Speaker 1: by And I'll also say that the time you want
Speaker 1: to deploy capital is when it feels terrible to do so.
Speaker 1: And if you look at the percentage of you know,
Speaker 1: barious surveys out there, you know that most investors feel
Speaker 1: pretty terrible. Just look at consumer surveys as well, And
Speaker 1: so I think you can step in incrementally. But one
Speaker 1: thing that I really like doing right now is pick
Speaker 1: your favorite ideas in equities. Maybe it's you know, the
Speaker 1: cash flowing, you know, digital transformation type stocks, you know,
Speaker 1: maybe it's some of the winners of decarbonization, where you
Speaker 1: have a clearer path to profitability. Pick your favorite spots
Speaker 1: and see if you can utilize the options market so
Speaker 1: that rather than just going all in and being long
Speaker 1: from day one, you know, maybe you still up pot
Speaker 1: and you collect that premium then gives you a little
Speaker 1: bit of buffer on the downside. You know, maybe you
Speaker 1: use that, you know, put option premium to buy a
Speaker 1: call option. There's really interesting ways to structure different payoffs
Speaker 1: that are not just one to want in the market.
Speaker 1: And I think that's a better risk adjusted way to
Speaker 1: enter some of these positions, given that we still can't
Speaker 1: quite call the market bottom yet. Speaking of interesting way
Speaker 1: to structure payoffs at a stage, I assume you must
Speaker 1: get peppered with questions from clients about crypto and you
Speaker 1: know where that fits into sort of a multi asset
Speaker 1: allocation strategy, uh, that type of thing. You know, how
Speaker 1: are you thinking about crypto these days? Uh, both as
Speaker 1: a and as a class itself, and but also how
Speaker 1: it sort of fits into the larger eco system. You know,
Speaker 1: is some of the weakness in stocks related to crypto?
Speaker 1: Or is the weakness and crypto, you know, related to stocks?
Speaker 1: How are you thinking about you know, where crypto fits
Speaker 1: into sort of uh modern markets? Um, you know, it
Speaker 1: just really feels like a falling knife right now that um,
Speaker 1: you know, the people who warned that it was the
Speaker 1: Dutch tool, the bubble of the of the seventeen hundreds.
Speaker 1: I feel like you're probably taking a big victory lap
Speaker 1: right now. I mean, is it that dire? Was this
Speaker 1: just a manic cheap money bubble? Uh, that's that's going
Speaker 1: to disappear now? Or or what? How are you thinking
Speaker 1: about crypto? I guess is the way to summarize that
Speaker 1: twal party question question just one point. It might be
Speaker 1: a twenty minute answer, because there's just so much to
Speaker 1: say about crypto. I promise it won't be a twenty
Speaker 1: minute answer. But but I will say that for a while,
Speaker 1: Bitcoin a little bit of vert for being an inflation hedge.
Speaker 1: I say that because when inflation was rising and the
Speaker 1: FED was doing nothing about it, of course bitcoin was
Speaker 1: the place that people wanted to go. But now that
Speaker 1: the FED is doing something, doing quite a lot about inflation,
Speaker 1: you can't make that argument about that being inflation hedge anymore.
Speaker 1: So then you refer to the other side of the coin,
Speaker 1: which is that is technology. It is innovative technology, and
Speaker 1: it is unprofitable. So this is why you look at
Speaker 1: how all the crypt ecosystem has been trading. It's been
Speaker 1: trading in lockstep with the NASDAC and specifically with the
Speaker 1: unprofitable tech. And so that's why you're seeing this breakdown
Speaker 1: of momentum to the downside. And until the FED pauses,
Speaker 1: until we have you know, kind of a cap to
Speaker 1: the move higher in rate, you will continue to see
Speaker 1: pressure in crypto. But here's what I also say, And
Speaker 1: I was at the Consensus conference in Austin UM last
Speaker 1: week and one of the quotes from one of the
Speaker 1: panels was that make sure that you're in crypto for
Speaker 1: the mission and not the money. And that really struck
Speaker 1: me because there is so much specular fraud that has
Speaker 1: been accumulated in crypto and I am so so glad
Speaker 1: that that is being flushed out as we speak. That
Speaker 1: needed to break, that needed to be out of the system.
Speaker 1: But what's left is there is a significant utility function
Speaker 1: to blockchain technology. You know, can you build better decentralized
Speaker 1: application for lending, for market making? Uh? You know, for
Speaker 1: transaction settlement, for digital privacy. The answer is you probably can.
Speaker 1: And many innovative technologists are working on this. So there
Speaker 1: is a big mission driven cohort within the crypto ecosystem
Speaker 1: and I think that's what's exciting and that's what's here
Speaker 1: to stay. But I'm glad that we're seeing algorithmic uh
Speaker 1: you know, old coins breaking down. I'm glad that we're
Speaker 1: seeing unsustainable lending schemes breaking down. And I'm hopeful that
Speaker 1: what this ultimately leads to is regulation. The regulators set
Speaker 1: back for ten years, let this speculative bubble inflate. And
Speaker 1: you know how it works. It takes a blow up,
Speaker 1: if it takes a meltdown for us to finally do
Speaker 1: something about it and regulated. So I think that is
Speaker 1: the moment that is ultimately going to be the best
Speaker 1: thing to happen for crypto for years to come. Is
Speaker 1: that regulation. So Mike, Mike mentioned that, you know, probably
Speaker 1: a lot of clients are asking about that. What else
Speaker 1: are clients asking you? Is it mainly inflation in the fetter?
Speaker 1: What else is top of mind for them in terms
Speaker 1: of worries or concerns. Yeah, it's it's obviously inflation. It's
Speaker 1: it's obviously recession hedging, and there is a pretty conservative
Speaker 1: element um to how clients want a position right now.
Speaker 1: If speaking of structure and payoffs, a lot of clients
Speaker 1: are focused on, you know, maybe entering into the equity markets,
Speaker 1: but giving themselves some principal projection when they do. UM,
Speaker 1: A lot of clients are looking to volatize this elevated
Speaker 1: volatility and convert that into sort of a income proxy.
Speaker 1: And once again, if you can sell a put option
Speaker 1: and collect the generous premium, that could give you a
Speaker 1: pretty nice income proxy as well. UM. And then you know,
Speaker 1: the big theme that resonates with clients is that you've
Speaker 1: got to get paid while you wait. I think all
Speaker 1: of us are acknowledged that we are in a difficult
Speaker 1: um time frame. It's gonna take a little while to
Speaker 1: work through this. But where can you get stability working?
Speaker 1: You get income in the portfolio because I mean cash
Speaker 1: and I pay you something, But inflation is still eight
Speaker 1: point three percent, so we're eight point six percent, I
Speaker 1: should say, so how do you keep up with that?
Speaker 1: So that's why ideas in private credit that may be
Speaker 1: yielding eight percent, that's why ideas in real estate resonated
Speaker 1: really well with clients and continue to. So bottom line
Speaker 1: is people want to be comfortable with their allocations right now.
Speaker 1: I mean, none of us feel great about the markets,
Speaker 1: but it doesn't mean that we can't feel comfortable with
Speaker 1: our portfolios. So it's about right sizing the allocation, making
Speaker 1: sure you have staying power, and you know what, making
Speaker 1: sure you have dry powder, because we will have the
Speaker 1: moment in the market where will say this is a
Speaker 1: screaming by and let's do increase our allocations sustainably. So
Speaker 1: um so a combination of those you know, protection strategies,
Speaker 1: yield and having the dry powder. That's you know, uh,
Speaker 1: and says it's funny. Our colleague John Authors writes a
Speaker 1: column at the end of every year You're called Hindsight Capital,
Speaker 1: and it's an imaginary hedge fund that invest with the
Speaker 1: power of hindsight. Uh. You know. In other words, he
Speaker 1: just looks back at the beginning of the year and
Speaker 1: determines what did did the best uh that year? And
Speaker 1: and you know, it's a funny column about how of
Speaker 1: course that's what they invested in. I have a feeling
Speaker 1: Hindsight Capital is going to be like double triple levered
Speaker 1: into commodities this year. So um, I'm curious, you know
Speaker 1: how you're thinking about commodities. Obviously, you know, energy energy
Speaker 1: equities and commodity linked equities were probably one of the
Speaker 1: only places to hide out this year and and uh,
Speaker 1: you know, not lose money. Has that ship sailed? Do
Speaker 1: you think, um or is there still sort of runway
Speaker 1: to get into commodities at this point? Well, you know,
Speaker 1: my there's a big argument to be made that we're
Speaker 1: in a structural deficit of all sorts of commodities. And
Speaker 1: it's true for food, it's through, for weed, it's through
Speaker 1: for um, you know, gasoline, metals, lithium, you name it. Um.
Speaker 1: I think, while that's true, I think the most likely
Speaker 1: path for commodities right now is higher first, perhaps in
Speaker 1: the very near term, and then lower later perhaps I
Speaker 1: mean not to distant future. And I say this in
Speaker 1: order to right size and shift the supply demand and balance.
Speaker 1: What you really have to do is if you can't
Speaker 1: fix the supply side, then the demand has to come down.
Speaker 1: And you know, the FED is obviously trying to bring
Speaker 1: that demand down, and I think the prices and the
Speaker 1: FED is not If the FED is not successful, then
Speaker 1: elevator prices that what has to do this. So for
Speaker 1: oil in particular, I think if oil prices search in
Speaker 1: other twenty barrelers, so that will lead to more pronounced
Speaker 1: demand instruction. And then you know, as economic activity slows down,
Speaker 1: I think you see that demand instruction more and more,
Speaker 1: and so that's what's likely to bring down commodity prices.
Speaker 1: So I don't know that it's the time to chase
Speaker 1: the upside uh in commodities. UM. I think there are
Speaker 1: probably some places that you can make the case for,
Speaker 1: you know, longer term investment opportunity. If you think of
Speaker 1: something like lithium for example, which by the way, speaking
Speaker 1: of chasing it, it's up over the last year or so.
Speaker 1: But nevertheless, electrically, coal um penetration in the United States
Speaker 1: is very low relative to Europe and China, for example,
Speaker 1: but there's a lot of catching up to do. That's
Speaker 1: where the world is headed. So I think you can
Speaker 1: make the case for some of these commodities, but not
Speaker 1: a blanket statement right now. And speaking of hindsight and
Speaker 1: looking back at the past six months of the year,
Speaker 1: obviously a lot has happened that many people weren't expecting
Speaker 1: to happen. We had prescious invasion of Ukraine, we had persistently,
Speaker 1: persistently persistently high inflation, etcetera, etcetera. I'm wondering what from
Speaker 1: the past six months you're taking with you in the
Speaker 1: for the next six months in terms of like lessons learned, uh,
Speaker 1: and what to expect for the second half of the year. Yeah,
Speaker 1: it's a really eight um question. And I think the
Speaker 1: biggest lesson learned is that over the last six months
Speaker 1: is that we can't apply the playbook of the last
Speaker 1: several years to the next six months or the next years.
Speaker 1: This is truly an unprecedented environment. Um. You know, an
Speaker 1: eight point six percent inflation print, and inflation that's becoming
Speaker 1: entrenched in every single sector where you have supply chain
Speaker 1: challenges not only not related to the pandemic and the
Speaker 1: kind of the overhang of the pandemic, but just related
Speaker 1: to the fact that we have not built enough capacity
Speaker 1: in the refining sector, in the housing sector, and so
Speaker 1: on and so forth. So in that environment where you
Speaker 1: have these imbalances, we can just make blake and statements
Speaker 1: and assume that we're going to go back to exactly
Speaker 1: where we started before COVID, and so it is a
Speaker 1: little bit bimble. It is a little bit more touch
Speaker 1: and go, and it is a more cautious approach until
Speaker 1: we finally see that flapping out and it is delaration
Speaker 1: or inflation. So I guess the takeaway is, don't apply
Speaker 1: the same playbook and you know, don't don't make a
Speaker 1: blanket assumption, but just be more nimble in your portfolios.
Speaker 1: And I think, by the way, that's the takeaway for
Speaker 1: the FED as well. Anastasia Amirosso. It's always such a
Speaker 1: treat to hear your insights, uh and your wisdom. We
Speaker 1: really appreciate your time. I have to say, though, I'm
Speaker 1: from Philadelphia, so every time I see your name, I
Speaker 1: think of the delicious Amirosso Hogi Rolls out of Philadelphia.
Speaker 1: I don't know if there's any relation there, but there's
Speaker 1: no relation, but sounds like we should have that on
Speaker 1: the podcast next time. Yeah, they're they the top of
Speaker 1: the league table of Hogi Rolls in the Philadelphia area.
Speaker 1: So a very very distinguished name from where I come from. Amazing,
Speaker 1: And what else is distinguished? It is not necessarily the
Speaker 1: seguay I'm making, but what the that ship is, but um,
Speaker 1: it's I tried. They're not always going to be good
Speaker 1: home runs. Most of the time, they're sometimes yeah yeah,
Speaker 1: emphasis on some as always filled out. I want to
Speaker 1: start with you because I know if you've spent hours,
Speaker 1: hours upon ours reading financial news in hopes of finding
Speaker 1: the craziest thing in markets for this week, what do
Speaker 1: you do? But everything this week was a little bit
Speaker 1: more on the serious side. So I actually had a
Speaker 1: little bit of trouble. But then I saw this NBC
Speaker 1: News story that really caught my eye. So we know
Speaker 1: that in crypto you have a lot of actually outside
Speaker 1: of CRYPTI have a lot of people calling crypto stuff,
Speaker 1: you know, fraudulent and scammy, etcetera, etcetera. So there's this
Speaker 1: VC news story as it happened. But there's this NBC
Speaker 1: news story about Anna Delvy. Do you know who she is?
Speaker 1: That rings but no, I can't. There's a Netflix series
Speaker 1: based on her where she had been pretending to be
Speaker 1: an heiress, a German heiress, and she defrauded a lot
Speaker 1: of people. And the Netflix series is called Inventing Anna.
Speaker 1: But anyway, NBC spoke with her and she said she'd
Speaker 1: never encourage anybody to follow her footsteps, and at the
Speaker 1: same time, she unveiled an n f T collection, So
Speaker 1: you you NBC said, you know the infamous socialement at
Speaker 1: ten n f T s that will grand holders exclusive
Speaker 1: access to her, including one on one phone calls. So wow,
Speaker 1: I don't know about that. I uh boy one on
Speaker 1: one phone calls and n f T with embedded one
Speaker 1: on one phone call. It's a rave It's a brave
Speaker 1: new world. It's kind of like if you've made a
Speaker 1: cameo into an n f T. I guess you know
Speaker 1: there's cameos. I gotta watch that show. I'm behind all
Speaker 1: my Netflix. I don't know. There's so many shows I've missed.
Speaker 1: I need uh, I need the NBA player your way
Speaker 1: behind if you've never heard of this one? Yeah, all
Speaker 1: these shows you guys talk about, I've never seen one
Speaker 1: of them. I'm thirty years behind. Yeah, how about you
Speaker 1: at the stage? Have you seen anything crazy this week?
Speaker 1: This week, there's been a lot of plenty of crazy
Speaker 1: market movements. But I ain't gonna stick with crypto and
Speaker 1: you know what, vill Donno is mentioning. But you know,
Speaker 1: to me, the crazy thing is we've had the cell
Speaker 1: serious news and you know, any time you get an
Speaker 1: offer to park your cash and earn an eighteen and
Speaker 1: a half percent, you kind of have to stop and
Speaker 1: ponder and think how and why and is it? You know,
Speaker 1: is it solid, is it bulletproof? Is it gonna hay out?
Speaker 1: You know what kind of credit risk you're taking? And
Speaker 1: what's really crazy to me is it's some of the
Speaker 1: stuff that's been built in the crypto ecosystem parkens back
Speaker 1: to the two thousand and eight era, where just one
Speaker 1: assumption goes wrong and then everything goes unwound. So to me,
Speaker 1: that's sort of crazy that we continue to get into
Speaker 1: some of these speculative bubbles even though we've learned the
Speaker 1: lessons from the financial crisis. But perhaps so we haven't.
Speaker 1: But once again, I guess that's what it takes to
Speaker 1: uh for the regulators to step in and to make
Speaker 1: things better in the end. Now they're the the echoes
Speaker 1: of the financial crisis are are all over the place,
Speaker 1: you know, the whole notioner re hypothecation and just counter
Speaker 1: party risk that you don't even realize is there, and
Speaker 1: it's just it's pretty remarkable. Um So that's a good one.
Speaker 1: I like that, and I wonder. You know, I do
Speaker 1: think a lot of people probably piled into these these
Speaker 1: lending schemes without really appreciating the risk. But come on,
Speaker 1: how could you? How could you not? At least the
Speaker 1: sophisticated under the business must have known that this is
Speaker 1: this is kind of a house of cards to some degree.
Speaker 1: But but they still they still chased it. Anyway, I am,
Speaker 1: for once going back to the traditional markets for my
Speaker 1: craziest thing, and it is, uh, the energy market, the
Speaker 1: gasoline market. As we all know, gas prices have famously
Speaker 1: risen above five dollars a gallon for the first time nationwide. California,
Speaker 1: of course, is famous for even higher gas prices uh
Speaker 1: than that. However, what if I were to tell you, Bildonna,
Speaker 1: that you could buy gasoline at one station in California
Speaker 1: for sixty nine cents a gallon? Would that make you
Speaker 1: want to drive all the way out to California to
Speaker 1: fill up your taxes? It sounds too good to be true.
Speaker 1: Well indeed it was, and what happened. It's basically the
Speaker 1: equivalent of a gas station fat finger trade. Uh. The
Speaker 1: manager of the station mensa input a price of six
Speaker 1: dollars and cents, but he got the decimal in the
Speaker 1: wrong place and put it up there for sixty nine
Speaker 1: cents um for whatever reason, and then they don't explain it.
Speaker 1: This is the story courtesy of the website of CBS
Speaker 1: thirteen Sacramento. And it's not quite clear why he didn't
Speaker 1: immediately fix it. But they began selling guests for sixty
Speaker 1: nine cents for social media, but one of this, and
Speaker 1: soon there were lines, uh deep lines at this particular
Speaker 1: gas station. So of course, as you know, you can
Speaker 1: probably guess, I have to turn this into an episode
Speaker 1: of the Prices right right now, So I want you
Speaker 1: both to guess, how much do you think this fat
Speaker 1: fingered guest lean pricing at this station tossed the station
Speaker 1: before they were able to fix it. Should I go first? Okay,
Speaker 1: so there was a deep line. He was losing a
Speaker 1: lot of money he or she I will go with dollars.
Speaker 1: I'm hoping really quickly. But he had to honor all
Speaker 1: the people on the line. That's probably true. Yeah, I
Speaker 1: think maybe that is the big, big problem they faced.
Speaker 1: How about you in a station? How much do you
Speaker 1: think this costs this gas station? Oh? That's so tough.
Speaker 1: I think with the speed of social media. Uh, somebody
Speaker 1: probably caught him pretty quickly, so I'll take the under
Speaker 1: I'll go fifteen pretty good. You guys were both pretty
Speaker 1: pretty close to the markets sixteen tho dollars, Uh wow
Speaker 1: station before they could Finally, he's a pretty good guess.
Speaker 1: They were both pretty good guesses. I don't know what
Speaker 1: I would have guessed, um, which is sort of the
Speaker 1: privilege I have as the host of crazy things. What
Speaker 1: goes up prices right? So they did have to honor
Speaker 1: the people online. They did, and the gas station manager
Speaker 1: got fired, and I guess his families they're worried out
Speaker 1: and getting sued, even even though I guess there's he
Speaker 1: probably won't legally be able to get sued for a
Speaker 1: mistake like this, but they've started to go fund me
Speaker 1: to recoup the sixteen thousand dollars and hopefully get this
Speaker 1: guy's job back. So uh, pretty costly era And anyway,
Speaker 1: some people got gas, so there's there's a silver lining
Speaker 1: to it. Anyway, I think that is all the time
Speaker 1: we have Anastasia amarroso always a pleasure. Hopefully we can
Speaker 1: tricky into coming back and playing prices right again. Sometime.
Speaker 1: Let's play this again. We'll be back. Thank you for
Speaker 1: joining us What Goes Up. We'll be back next week
Speaker 1: and so then you can find us on the Bloomberg Terminal,
Speaker 1: website and app or wherever you get your podcast. We
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Speaker 1: What Goes Up is produced by Stacy Wang. The head
Speaker 1: of Bloomberg Podcast is francesco Leavie. Thanks for listening. To
Speaker 1: see you next time.